How Will the Alaska Air Group-Virgin America Merger Impact Stock?


Nov. 20 2020, Updated 12:22 p.m. ET

Historical performance

Virgin America (VA) went public in November 2014. Since then and just before the merger was announced, Virgin America stock gained ~30%. In the same period, Alaska Air Group (ALK) rose by 48% due to its improving profitability and high growth.

Most airline stocks gained in the same period due to the industry-wide increase in profitability. The increased profitability was due to the slide in crude prices.

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JetBlue Airways (JBLU) gained 69% in the same period. Southwest Airlines (LUV) gained 14%, Allegiant Travel (ALGT) gained 33%, Delta Air Lines (DAL) gained 7%, and United (UAL) gained 1%. Spirit Airlines (SAVE) was the only major airline that fell during the period. It lost ~38% during the same timeframe.

The Dow Jones US Airline Index (DJUSAR) gained 5% during the same period.

Since airlines are a discretionary spend, it also makes sense to compare their performance against the Consumer Discretionary SPDR (XLY). It gained almost 15%.

The broader market is tracked by the SPDR S&P 500 ETF (SPY). SPY gained 1.3% during the same timeframe.

Virgin America gained after the merger announcement

After the Alaska Air Group merger announcement with Virgin America on April 4, 2016, Virgin America gained $2.6 billion. This was 40% higher than its closing market capitalization on April 1, 2016. Naturally, Virgin America’s investors applauded the deal. Virgin America’s stock rose 42% and closed at $55. It was just below Alaska Air Group’s offer of $57 per share.

In contrast, Alaska Air Group’s share fell by 5% and closed at $78.

Alaska Air Group forms 1.4% of the iShares S&P Mid-Cap 400 Growth ETF’s (IJK) holdings.

To receive regular updates on airlines, visit Market Realist’s Airlines page.


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